Slowing in US Federal asset purchases still in the balance

A slowing of US Federal Reserve asset purchases is still in the balance with many officials wanting more gains in the jobs market first, according to minutes of its most recent meeting.

The minutes released yesterday show that Ben Bernanke, the Fed chairman, was not signalling a definite "tapering" of quantitative easing from $85 billion a month at his June press conference, but rather was trying to be clearer about the conditions that would trigger it.

That is likely to reassure global financial markets, which plunged after Mr Bernanke sent out a detailed scenario, with asset purchases slowing down this year and ending in the middle of 2014 with unemployment at 7 per cent.

According to the minutes, "several" voting members of the rate-setting Federal Open Market Committee (FOMC) thought asset purchases should slow soon, but "many" wanted to see a further improvement in the jobs market first.

Crucially, some of those members said they would need to see an acceleration in the economy as well as more jobs growth before tapering. With the economy weak now because of cuts to public spending, that would almost certainly delay a slowdown in asset purchases to the late autumn or winter.

In the jargon of Fedspeak, “several” is likely to mean three out of the 12 voting members of the FOMC, while “many” covers most of the other nine. That suggests a clear majority on the committee who want more data before tapering.

The committee has scheduled meetings in July, September, October and December.

The first jobs report since the FOMC met in June was strong, with growth of 195,000 jobs. But most estimates suggest that economic growth was weak in the second quarter, and third quarter data will not be available until late October.

The minutes hint at a difficult committee discussion with disagreement about when and whether to provide more information about the future of the Fed’s QE3 round of asset purchases.

Some Fed officials wanted to include that information in its regular post-meeting statement and give hard numerical thresholds for changing QE3. But other officials thought that was not possible and it would be difficult to be succinct in the statement. – Copyright The Financial Times Limited 2013